Zacks Investment Ideas feature highlights: Hanover Insurance Group, DineEquity and Umpqua Holdings - Press Releases

For Immediate Release

Chicago, IL- June 16, 2015 – Today, Zacks Investment Ideas feature highlights Features: Hanover Insurance Group (THG), DineEquity (DIN) and Umpqua Holdings ( UMPQ).

3 Solid Stocks for a Sideways Market

We are nearly halfway through 2015, and so far the stock market returns haven't been very impressive. The Dow Jones Industrial Average is slightly negative for the year while the S&P 500 is barely in the green.

Why have equity returns been so lackluster this year?

There are a number of factors, but the biggest two reasons, in my opinion, are (1) the lack of earnings growth, and (2) lofty valuations.

With profit margins already at record highs, it's difficult for many companies to grow their bottom lines without revenue growth. And revenue growth has been non-existent this year. This is due in part to a strong dollar, as a large portion of sales for the S&P comes from outside of the United States. But domestic revenue growth has not been very strong either.

Secondly, stocks are not cheap. The S&P is trading at more than 17x forward earnings, which is above its long-term average. And the cyclically-adjusted P/E ratio is even higher at 27x, placing it among the top 10% most expensive markets by this metric.

Because of these factors - and the increased likelihood of a rate hike from the Fed in the second half of the year - investors do not seem too eager to jump into the market at these levels.

What to Look For

However, that doesn't mean that all stocks will trade sideways for the foreseeable future. To generate strong total returns in this market, I recommend that investors look for companies where:

• earnings and revenue are growing at a healthy clip

• earnings estimates aren't declining

• valuations are reasonable

• a strong dollar, low oil prices and rising rates are not headwinds, and

• the dividend yield is above 2%.

I ran a screen in Research Wizard given these criteria. Here are three stocks from the list:

The Hanover Insurance Group (THG)

The Hanover Insurance Group provides a wide range of property and casualty insurance to businesses and individuals through independent agents. It is the holding company for The Hanover Insurance Company and Citizens Insurance Company of America.

Based on current consensus estimates, analysts project THG to grow EPS 11% in 2015 and 9% in 2016. Additionally, the company pays a dividend that yields 2.3%. Valuation looks very reasonable too with shares trading at 12x 12-month forward earnings and 1.2x tangible book value.

And while some companies are fretting rising rates, insurers like The Hanover Insurance Group could actually benefit. The company would enjoy higher yields on new and reinvested funds, thereby boosting investment income.

DineEquity (DIN)

DineEquity primarily franchises restaurants under the Applebee’s Neighborhood Grill & Bar® and IHOP® brands. It has more than 3,600 restaurants combined, most of which are in the United States. The company has been delivering strong top- and bottom-line growth, driven by solid same-restaurant sales growth and expanding profit margins. One reason for the solid revenue growth has been low oil prices, which has put more money into the pockets of consumers.

Based on current consensus estimates, analysts project 24% EPS growth this year and 6% growth next year. DineEquity also pays a dividend that yields a juicy 3.5%. Shares trade around 16x 12-month forward earnings, a significant discount to the industry median of 24x.

Umpqua Holdings (UMPQ)

Umpqua Holdings is the parent company of Umpqua Bank, which has locations across Idaho, Washington, Oregon, California and Northern Nevada. With all of its revenue coming from the United States, the company doesn't have to worry about a strong dollar.

Umpqua is growing earnings at a healthy clip too. Based on current consensus estimates, analysts project 11% EPS growth this year and 10% growth next year. The company also pays a dividend that yields a solid 3.2%. Shares trade at less than 15x forward earnings and just 1.1x book value.

Additionally, as a bank, Umpqua should benefit from a rising interest rate environment, assuming long-term rates rise faster than short-term rates.

The Bottom Line

The stock market hasn't done much so far this year. And given the current headwinds, I don't expect stellar returns in the second half either. However, not all stocks will trade sideways in a flat market. These three companies are each well-positioned to deliver strong total returns in the current market environment.

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HANOVER INSURAN (THG): Free Stock Analysis Report
 
DINEEQUITY INC (DIN): Free Stock Analysis Report
 
UMPQUA HLDGS CP (UMPQ): Free Stock Analysis Report
 
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